Selling your home for a profit is an exciting opportunity. However, you should know a few things before you begin the process. This guide to taxes on selling a home will help you learn more about capital gains taxes and how to qualify for exemptions.
Do I Have to Pay Taxes on Gains From Selling My House?
Generally speaking, you must pay taxes on any profits when selling a house. You’ll need to report the sale on your tax return if any part of it is taxable. However, you can be exempt from paying capital gain taxes under some circumstances. Understanding the rules and limitations of property law can help you maximize your tax benefits.
Luckily, there are ways to minimize how much tax you pay if you meet specific criteria.
You can exclude the profit from selling a house if you can prove it’s your principal residence. To be eligible, you must have lived in the house for at least two years of the five years before the sale. Those two years can be nonconsecutive, but you must be able to prove it was your primary residence during that time.
If you’re able to show that the house was your primary residence, there are also exclusion limits for gains. Single taxpayers can avoid paying gains taxes on profits up to $250,000, while married taxpayers filing jointly can claim up to $500,000.
A 1031 Exchange
If the home you’re selling is not your primary residence, you can still be exempt from paying capital gains taxes. The 1031 exchange allows you to sell an investment property for a profit and reinvest in a like-kind building or plot of land. You must use the profits from the sale to buy a property of an equal or greater value than the one you just sold.
Section 1031 also states that you only have a certain amount of time after selling a house to buy another and avoid the tax penalty. There are many different ways to proceed with a 1031 exchange, but all of them require you to complete the exchange within 180 days to receive the full tax benefits.
Get Property Tax Advice Today
Get professional advice from our experienced team of certified public accountants and advisors. Marshall Jones is committed to providing quality tax advisory services for corporations and individuals. Contact us today for help with your property gains taxes.